Driving Cash Flow Through: Gross Margin!
There are only two ways to improve your Gross Margin (and thereby increase cash flow): Increase prices and decrease costs. Let’s take a quick look at both of these options.
A solid market analysis is an especially useful thing when determining appropriate pricing. Conduct a market analysis every few years – more often if your industry or market is in flux.
You should also consider your place within the industry. Are you the low-cost provider (thereby quality and service are secondary) or the luxury brand? A market analysis will give you a better picture of where you fit along the spectrum and help you determine whether there is wiggle room in your pricing.
The other way to increase gross margin: Lower your costs — wisely!
If you are a service firm and your largest expense is payroll, there may not be a way to decrease your cost of sales without sacrificing the quality, service, and goodwill of your current employees.
If you are a manufacturer, the options are more diverse. You can pay your labor differently. You can buy material differently. You can re-engineer the product, so it uses less material or standardized components.
Want help with market analysis? It’s just one of our many accounting services. We are just a phone call away.
Don’t stop here. Be sure to check out some of our other accounting resources.
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